Chris McGinnis, Head of Strategy at Temenos (source photo: LinkedIn)

For the past nine years, Temenos has conducted a comprehensive banking survey, covering areas such as banks’ corporate and IT priorities, their challenges, and their view of the competitive environment. Because the questions posed are largely consistent from one year to the next, our survey tracks how trends and attitudes have changed over time. Moreover, because the respondent sample is highly diverse, both in terms of types of banks and geographic location, the results give a broad view of banking sentiment.

This year’s survey canvassed the opinions of 235 senior bankers who attended the Temenos Community Forum in Barcelona (TCF 2016) and the results are presented in association with Capgemini, a global leader in technology, consulting and outsourcing services.

The following executive summary is an excerpt from the full TCF survey report which can be viewed here.

As with our 2015 survey, this year’s results included extensive year-on-year differences underlining the speed of change in the banking industry. Regulatory burdens seem, once again, to be gently diminishing, at least relative to the other challenges banks face. Instead, banks are preoccupied with customer retention in the face of a tougher, but fast-changing, competitive landscape.

Unlike last year, banks are now more concerned about threats from within the industry—that is, from other banks—than from non-banking entrants. In particular, they worry about the largest incumbent banks’ continued ability to marshal significant resources and the threat from a new generation of neo-banks, which operate differentiated business models and are unencumbered by legacy systems. The potential threat from FinTech companies also is seen to have increased compared with 2015.

To counter these threats, banks continue to invest heavily in IT systems. They are investing in digital channels as well as in the modernization of the underlying systems that will enable them to capitalize fully on those investments.

The broader aim seems sound. Banks, we believe, increasingly realize they will need full end-to-end systems, as well as data-analytical capabilities, if they are to provide rich and instant fulfilment, serving up insights that help customers make smarter financial decisions. And, more and more, they realize they must embrace open banking (opening up their platforms to third-party providers) if they are to deliver on their role as a trusted virtual advisor and prevail in their battle to retain customer loyalty.

Open banking moving from a curiosity to reality

A major change in this year’s survey is the banking industry’s perception, understanding and willingness to embrace open banking. Compared to 2015, the industry today accepts open banking as more of an opportunity than a threat; and significantly fewer respondents are concerned by cost or technology constraints. In fact, the survey indicates that open banking is a priority and that banks are ready to invest in APIs to achieve it.

Retaining customer loyalty remains top concern

Retaining customer loyalty remained as the top concern for bankers in this year’s survey. However, the number of respondents citing it as number one dropped relative to recent years and likely reflects a more proactive view from bankers as they realize that, for example, leveraging data to improve customer experience is actually one of the best ways to retain customer loyalty.

Managing and capitalizing on data become bigger priority

Managing data and using it effectively was the second biggest concern for banks in this year’s survey, up from fifth place in 2015. This reflects the realization by banks that they must capitalize on data, one of their biggest strategic assets, to combat increasing banking industry competition. While of strategic importance, the results also indicate that leveraging this data will be a challenge as banks face constraints including skills’ shortages and legacy systems that store data within silos.

Digital channels, product innovation and IT modernization are top corporate priorities

The banking industry is responding to its challenges and competitive pressures through investment in digital channels (cited by 25% of respondents) and product innovation (cited by 22%). IT system modernization remains a priority as banks realize they will not be able to fully leverage digital channels, offer truly innovative products or take advantage of emerging technologies like Blockchain without modern, flexible, real-time end-to end systems.

Slow, but steady, Cloud adoption increases

Over the years our survey respondents have shown an increasing willingness to adopt the cloud, but largely for non-mission critical systems such as email, while adoption for strategically important systems such as core processing remained largely non-existent. This year’s survey indicates that cloud adoption continues to grow steadily for general applications. What is more interesting is that the number of respondents running mission-critical applications such as core processing is growing quickly, although admittedly remains very low (3% of respondents in 2016 versus 1% in 2015). This is likely driven by a growing willingness from financial regulators to accept the cloud, a higher level of trust and belief related to cloud security, as well as increasing proof points globally of regulated institutions putting their systems in the cloud.

Regulatory burden is stabilizing

Although regional differences apply, regulatory burdens faced by our survey respondents seem to be stabilizing. Regulation was considered the industry’s second biggest challenge in 2014 and 2013 and was considered the biggest challenge each year prior. However, in 2015 regulation management fell to the third biggest concern and remained at that level again this year. While there remains a significant burden in terms of implementing the raft of post-crisis regulations, the regulatory picture has become clearer and therefore, we believe, less concerning relative to other challenges.

Competitive pressures have rebalanced somewhat

In recent years, our survey increasingly pointed to the biggest competitive threat coming from outside the industry, from technology vendors such as Apple and Google as well as from FinTech start-ups. However, while the threat from FinTechs has grown year over year, the perceived threat from internet platform companies has fallen and the industry is once again more focused on the threat posed by large incumbent banks and new challenger banks. We believe this acknowledges that banking-based business models, owing to a number of sustainable strengths such as easy access to capital, can be successful in the digital age and those banking models are most effective when unencumbered by legacy systems. It also interesting to note that the industry seems less concerned by the threat of overseas banks entering their markets which indicates a (regulatory-induced) balkanization of banking services.

IT spending plans remain at all time high

IT budgets are forecasted to be up strongly again in 2017. The gap between the number of financial institutions predicting their IT budgets to increase in the coming year versus those expecting budgets to fall is at its highest ever level since we first conducted this survey in 2008. The areas with the highest levels of projected spend over the next 12 months are, in order, core banking systems, digital channels and analytics. These priorities point to the realization by banks that end-to-end transformation is needed to achieve both sustained cost reduction and improved customer experience.

To read more, the full TCF survey report can be viewed here.